Finance Portfolio Management

Running head: FINANCE PORTFOLIO MANAGEMENT
Finance Portfolio Management
Name of the Student:
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Author’s Note:

1FINANCE PORTFOLIO MANAGEMENT
Table of Contents
Answer to question 1:......................................................................................................................3
Concept of Consumer Sovereignty:.............................................................................................3
Profit maximization objective and perfect competition:.............................................................3
Equilibrium price determination and Consumer sovereignty:.....................................................4
Consumer Sovereignty Vs Profit maximization:.........................................................................4
Answer to question 2:......................................................................................................................5
Perfectly competitive market structure:.......................................................................................5
Answer to question 3:......................................................................................................................8
Wealth maximization Vs Profit Maximization:...........................................................................8
Comparison between Wealth Maximization and Profit Maximization:..................................8
Superiority of Wealth Maximization over Profit Maximization:................................................9
Answer to question 4:....................................................................................................................10
Fiscal Policy:.............................................................................................................................11
Monetary Policy:.......................................................................................................................11
Supply side policies:..................................................................................................................11
Decreasing Tax burden:.........................................................................................................12
Labor Market Flexibility:......................................................................................................12
Privatization:..........................................................................................................................12

2FINANCE PORTFOLIO MANAGEMENT
Trade and Labor Union Relationships:..................................................................................12
Environmental Policies:.........................................................................................................13
Answer to question 5:....................................................................................................................14
Sub part a:..................................................................................................................................14
Sub part b:..................................................................................................................................14
Sub part c:..................................................................................................................................15
References and bibliography:........................................................................................................16

3FINANCE PORTFOLIO MANAGEMENT
Answer to question 1:
Consumer sovereignty implies that, the buyer is having the full power to choose any
product and the source or the supplier of that product from options available to him. It influences
the production decisions of the producers. Profit maximization is the concept of overall objective
of the producers. A producer having the profit maximization objective strives at producing the
goods in a cost efficient manner with the minimum cost, thereby earning the maximum profit.
Concept of Consumer Sovereignty:
The main feature of a perfectly competitive economy is the numerous buyers and sellers
and their freedom of buying and selling decisions. Such situation can only arise, if there is a
complete flow of information in the market and all the participants of the market are fully aware
of the prevailing market situations. As numerous sellers are selling identical goods, sellers can
choose any one of and they take the decision rationally and select the seller with most favorable
product offerings. The choose supplier who are quoting suitable terms with highest quality
products.
The degree of consumer sovereignty varies with the market structure and some other
market conditions. In a perfectly competitive market, consumers enjoy highest consumer
sovereignty. On the other hand, in a monopoly market, they enjoy very less degree of consumer
sovereignty. In all other market situations, it depends on certain conditions and degree of
dependency.
Profit maximization objective and perfect competition:
Producers are producing goods and delivering goods to the consumers with the objective
of earning profit. Some authors and entrepreneurs consider the wealth maximization should be